TEXAS SNAPSHOT, JUNE 2006

Austin Office Market

After being dormant for the past 3 years, the large office development market is heating up in Austin, Texas, according to Ford Alexander, partner and co-founder of Austin-based Colliers Oxford Commercial. “There is more than 2 million square feet of active office development currently planned or underway in Austin, mainly in the Far Northwest and Southwest submarkets,” he says. “For the past few years, we have been recovering from the technology bust that occurred in 2000 and 2001.”

Stratus Properties, for example, is currently developing two buildings in the Southwest submarket: an 80,000-square-foot facility at 7500 Rialto and an 870,000-square-foot campus for AMD. Other significant developments underway in the Southwest submarket include Transwestern Commercial Services’ 200,000-square-foot facility; Champion Partners’ 150,000-square-foot building located on the Southwest Parkway near MOPAC; and Brandywine Realty Trust’s 211,000-square-foot building at Capitol of Texas Highway and MOPAC.

“The Southwest submarket will see the most development, mainly on Southwest Parkway,” Alexander says. “This is where AMD’s new campus is being developed, along with Transwestern’s and Champion Partners’ projects. The Southwest submarket has the lowest vacancy rate of any significant submarket in town.”

In the Far Northwest submarket, Thomas Properties and Trammell Crow Company both have projects totaling more than 200,000 square feet each in the works. “Most of the new buildings are quoting a $20 NNN rate, which means the landlords are expecting continued absorption and rising rates,” Alexander says.

Several national developers have taken notice of Austin’s improving marketplace and are starting projects in the area. These new developers include Quentin Corporation, Champion Partners, Brandywine Realty Trust and Thomas Properties.

Class A rental rates for office property in Austin currently are ranging from $16 to $40 for full-service rates, according to Alexander. “The overall vacancy is 13.9 percent citywide,” he says. “Vacancy sits at 21.7 percent in the central business district (CBD), 11.6 percent in the Far Northwest submarket and 8.4 percent in the Southwest submarket.”

Looking ahead, the Southwest submarket is going to be the strongest market in terms of activity — both development and leasing — in the near future, Alexander says. “Developers are poised to deliver buildings that will handle the perceived demand created by increased job growth in the Austin area,” he says. “Conventional wisdom says rents will be rising during the next few years.”

— Ford Alexander is partner and co-founder of Austin-based Colliers Oxford Commercial.

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